The foreign exchange regulator said on July 12 it would strengthen oversight of capital flows, with a special aim to block illegal inflows of foreign capital disguised as trade.

    The State Administration of Foreign Exchange (SAFE) said on its Web site that it would "effectively prevent" inflows of speculative capital betting on appreciation of the yuan, also known as the renminbi.

    "In recent years, the persistent inflow of large amounts of foreign exchange capital have added up to pressure on the renminbi to appreciate, as well as imbalances in international payments," a summary of a work meeting said.

    China's foreign exchange reserves, the world's largest, swelled by US$266.3 billion in the first half to US$1.33 trillion, as the central bank has bought most of the U.S. dollars generated by the trade surplus and investment inflows in order to keep the yuan from strengthening too quickly.

    The agency said that an initiative launched last November, in which more than 5,300 export firms were earmarked as needing close attention because they were suspected of dealing in speculative capital through disguised trade flows, was showing initial results.

    It said that between November and April, annual growth in accounts receivable by all trade-related firms had dropped by 44 percentage points compared with the first 10 months of 2006.

    Among the firms receiving special scrutiny, the foreign exchange income that was in excess of their actual sales had dropped by 40 percent between the end of last September and the end of April.